Bricks-and-clicks convergence

By Walter Kemmsies|Friday, January 17, 2014

Strategic View

with Walter Kemmsies

A number of trends in the retail sector presage dramatic changes in the import distribution channels. The latest trend is for e-commerce retailers, like Amazon, to offer same-day delivery for Internet sales. This strategy is being tested in some urban markets and will likely spread across the country. More traditional retailers, often referred to as “bricks and mortar,” are responding. Given that consumers are getting used to shopping online---a trend that was very evident during the fourth quarter peak season in 2013---it is likely that retailers will continue to invest in this distribution channel. Logistics service providers such as freight transportation companies, seaports and airports, warehouse and distribution centers, as well as 3PLs, will have to adapt to this need for speed.
Since 2001 e-commerce sales have grown 10 percent per year on average, according to Census Bureau data, and are now more than half the level of general merchandise sales. There are many factors that account for this shift in share, with some of the main ones being:

The range of goods sold via e-commerce has increased significantly in the last 15 years. Amazon began as a book retailer and has since dramatically increased the range of goods that can be purchased on its Website to include food.

Express delivery services, such as those offered by FedEx, UPS, DHL and others, have been developed to accommodate the growth in e-commerce sales. These services continue to develop and the rest of the logistics supply chain is following suit. These companies have also made it easier for consumers to return goods to retailers which helped e-commerce companies overcome one of their competitive disadvantages.

Availability of Internet access has increased significantly beginning with basic services such as America Online and now wireless access via mobile devices like smartphones and tablets.

Consumers have become accustomed to shopping online and comfortable shopping with wireless devices.

Rising gasoline prices, crowded shopping outlets (particularly during the fourth quarter), and 24/7 access have made e-commerce shopping a more attractive option for many consumers. Along those lines it is interesting to notice that apparel outlets have become the dominant tenant in shopping malls, while book and music stores have all but disappeared. High-end malls use restaurants and artisanal offerings to induce brick-and-mortar shoppers.

These Trends Will Continue. It is reasonable to expect e-commerce sales to continue in light of other, larger trends:

Developed economy consumers are aging. Over the next 10 years, the number of Americans age 65 and older will increase on average by 1.5 million each year. This is the fastest growing demographic segment in the United States. Older people generally do not spend as much time outside of their homes as younger people do, according to the U.S. Bureau of Labor Statistics’ American Time Use Survey. In order to gain access to older consumers’ wallets it is probably necessary to go into their homes, via the Internet.

E-commerce companies are trying to overcome the competitive disadvantage of consumers having to wait to receive the goods they purchased by offering same-day delivery. So far this is likely to only be offered in urban areas but perhaps new delivery technology (drones?) could extend this service to more rural areas.

Brick-and-mortar retailers are responding to this competitive challenge. Many have developed and improved their e-commerce and catalogue sales offerings and services. Many have become links in the high-speed e-commerce supply chain, providing valuable delivery, return, and warranty services.

What does this mean to the freight movement industry? Major airports and seaports operate in areas that are already congested and where real estate is at a premium. As freight volumes grow, real estate near intermodal facilities will become less available as demand for fulfillment and distribution centers increases. Congestion is also likely to worsen in these same areas.
Intermodal nodes like seaports and airports need to review their investment and expansion plans taking these trends into consideration. Individual supply chain links, such as rail intermodal facilities, fulfillment and distribution centers, or chassis/container pools, will be located to maximize accelerated final product delivery. Both undertakings will require first rate scenario planning because there remains great uncertainty about how the import trends discussed here and others, such as export and empty container issues, are addressed. Real estate prices are recovering and interest rates are rising. The time to act is now, not later, when freight movement problems begin driving costs up and push businesses to other locations.